Way back in June, a day or so after Bank of America announced its proposed $8.5 billion settlement with Countrywide mortgage-backed securities investors, I wrote about the very peculiar vehicle through which the bank was seeking judicial approval of the arrangement. The settlement was filed by the Countrywide MBS trustee, Bank of New York Mellon, under Article 77 of the New York state code. Article 77, which allows a trustee to seek a judicial endorsement of trust-related decisions, is usually invoked in garden-variety trust disputes, not in an $8.5 billion deal affecting thousands of beneficiaries in 530 trusts. But the law offered distinct advantages for BofA, BNY Mellon, and the group of 22 institutional investors that negotiated the Countrywide MBS settlement. Under New York trust law, trustees have broad discretion to make decisions on behalf of the trusts they oversee. As long as the judge presiding over an Article 77 proceeding determines that the trustee has acted reasonably and hasn’t abused its discretion, the trustee’s decision gets a stamp of judicial approval. Anyone who disagrees with the trustee — and the banks and institutional investors that negotiated the BofA proposed settlement knew that there would be many investors who didn’t like it — bears the heavy burden of proving that the trustee acted outside the bounds of reason.

Appellate Division of the Supreme Court of the State of New York, First Department.
June 27, 1968

Concur — Steuer, J. P., Capozzoli, Tilzer, Rabin and Macken, JJ.

Order, entered on March 18, 1968, in this article 77 proceeding for the judicial settlement of a trustee’s account, unanimously modified, on the law and the facts and as a matter of discretion, to the extent of vacating so much thereof as appoints a private referee, and, as so modified, affirmed, without costs and without disbursements to any party.